Natural Gas Trading

Henry Hub

1- Layers in Natural Gas Price Actions

Layer	What It Represents
Weather	Demand shock (heating & cooling)
Storage	Buffer & sentiment anchor
Production	Supply elasticity
Infrastructure	Regional bottlenecks
Power sector	Gas ↔ coal switching
Exports (LNG)	Global linkage
Equities	Leveraged expression

Henry Hub price is benchmark price. From Wikipedia:

The Henry Hub is a distribution hub on the natural gas pipeline system in Erath, Louisiana, owned by Sabine Pipe Line LLC, a subsidiary of EnLink Midstream Partners LP who purchased the asset from Chevron Corporation in 2014.^[1] Due to its importance, it lends its name to the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX) and the OTC swaps traded on Intercontinental Exchange (ICE).

2- Weather: Primary Demand Driver

🔹Heating Degree Days (HDD): Measures cold intensity

• Used mainly Nov–Mar

Formula as below. 65°F=18.3°C

• HDD = max(0, 65°F − Daily Avg Temp)

• Higher HDD → colder → more heating → bullish gas

• Winter gas rallies are HDD-driven

🔹Cooling Degree Days (CDD): Measures air-conditioning demand

Formula as below. 65°F=18.3°C

• CDD = max(0, Daily Avg Temp − 65°F)

• High summer heat → power demand → gas-fired plants → bullish

Markets trade forecast changes, not absolute weather.

A warmer forecast revision = bearish, even if still “cold”.

3- Storage

Weekly storage data comes from EIA (U.S. Energy Information Administration)

Season	Market Focus
Injection (Apr–Oct)	Are we filling fast enough?
Withdrawal (Nov–Mar)	Are we running out?

• How Traders Read Storage: Not the number — the surprise=Actual Change − Expected Change

Result	Market Reaction
Smaller draw than expected	Bearish
Larger draw than expected	Bullish
Storage > 5-yr avg	Structural bearish
Storage < 5-yr avg	Risk premium

4- Supply Side: Production & Elasticity

• Dry gas production (Haynesville, Marcellus)

• Associated gas (comes with oil drilling)

• Rig count (lagging but sentiment-relevant)

⚠️ Oil drilling ↑ → associated gas ↑ → gas supply ↑ (bearish)

📌 Gas can be oversupplied even in cold weather if production is high.

5- LNG Exports: The Global Link

The US is now a global swing supplier.

LNG Bullish When:

• Europe cold

• Asia spot LNG prices high

• Export terminals running at capacity

LNG Bearish When:

• Terminal outages

• Weak global demand

• Shipping bottlenecks

  
  

📌 LNG ties Henry Hub to TTF (Europe) and JKM (Asia) indirectly.

6- Power Sector & Coal Switching

Gas competes with coal in electricity generation.

• Low gas prices → utilities switch from coal → demand ↑

• High gas prices → coal becomes economical → demand ↓

📌 This creates a price ceiling effect.

7- Trading Vehicles

Direct

• Natural Gas futures (NG)

• ETFs (UNG – decay risk)

  
  

Equities (Leveraged, Slower)

Segment	Examples
Producers	EQT, SWN
LNG	Cheniere
Infrastructure	Pipelines